INFORMATION ECONOMY DERIVATIVE MARKET MODEL (IEDMM)—OVERVIEW
Tier 1—Infostructure
Tier 1 represents the substructure of the physical system. It enables the delivery of digital content and services to the consumer. Infrastructure providers, like cable operators, telcos, and ISPs, will play the key role in deploying these substructure systems. These substructures offer pervasive Internet connectivity to the mass market by combining the following components.
Internet Backbone System
The Internet backbone system is the globally integrated, packet-based data network that will provide the Quality of Service levels (QoS) to support the distribution of digital content among users. This physical system will integrate a wide variety of industrial technologies including servers, routers, satellites, and fiber-optic cables to facilitate the instantaneous, bidirectional flow of data to locations throughout the world.
Home Infostructure
By combining broadband Internet access with a residential gateway and an in-home Information Appliance Network (IAN), the home infostructure portion of the network substructure brings the Internet to ubiquitous access throughout the home. We will examine the components of a typical home infostructure in the next section of this chapter.
Tier 2—ENDs
Consumers will experience the pervasive computing revolution when intelligent Electrodomestic Network Devices (ENDs), also called information appliances, become available in the mainstream marketplace. This market tier creates value by rendering digital media commodities and services to the consumer.
By connecting to the Information Appliance Network, each END can not only interoperate with other devices, but also provide residents with access to Internet-based services. The technical architecture of this new breed of information appliances is described in the next section of this chapter.
Tier 3—DMCs
Digital Media Commodities (DMCs) are the virtual products of the information economy. In technical terms, DMCs are the different forms of digital content that can be rendered into a format that a human can perceive. Movies, songs, text, graphics, phone calls, reference information, or any other type of content, when rendered into a digital format, all become DMCs. Tier 1 and Tier 2 create value by providing the technological platform on which the Tier 3 and Tier 4 derivative markets can function. Although these higher market tiers generate greater margins in the value chain, they function as derivative markets because their ability to generate value depends on the existence of the underlying tiers. For example, the technology now exists for content publishers to distribute music titles from the Internet directly to residential PC users. But this new distribution method depends on having a home infostructure, as well as inexpensive next-generation ENDs (in the form of a music server and networked speakers), to penetrate the mass market. Tier 3's value is generated through the development and distribution of digital content that, when marketed to consumers, takes the economic form of digital media commodities (DMCs). These virtual products fall broadly into three categories: communications, information, and entertainment titles.
Communications
The following list includes some of the different DMCs within the communications category:
Voice (local and long-distance Voice over IP)
Video conferencing
White board (collaborative communications)
Text chat
Entertainment (such as live telecasting, multiuser gaming, etc.)
Information
The following lists include some of the different types of applications within the information category.
Public Information (News, Events, and Research)
Intelligent agents can search, filter, retrieve, organize, and administer public domain information oriented toward individually specified user profiles.
Information delivery (output) may come in a variety of forms, ranging from in-home news printers to custom-cast telereporting. Examples of public information content include weather, traffic, current events, economy and finance, classifieds, reference, editorials, and emergency and crisis information.
Personal Information (Secured System)
Sophisticated databases and intuitive user interfaces can combine to form personal information management systems that will help control and store personally relevant content that changes over time with respect to user interaction. Here is a list of different types of information stored on the home networks of the future:
E-mail correspondence and content sharing
Personal and family scheduling
Coordination of events, schedules, and personal, intrafamily information
Administrative account management
Database management for multiple personal accounts (insurance programs, medical records, utilities, vendor billing accounts, etc.)
Identity records and authentication information
Social Security, passport, driver's license, birth certificate
Real estate property management
Home, car, electronics, appliances (warranties, insurance, maintenance information, etc.)
Financial management system
Banking (savings, checking, debit cards)
Asset management (credit, loans, investments)
Cash flow (paycheck income, bills, taxes, etc.)
Entertainment Titles
The following list includes the different user applications for digital titles, listed with respect to the different media formats:
Television programs (taped or archived programming)
Video (video on demand, DVD downloads)
Music (streaming audio, CD or MP3 downloads)
Gaming
Text
Hypermedia
Images and graphics
Tier 4—Services
Tier 4 of the economic model is comprised of different value-adding activities: coordinating the resources in the submarkets, bringing new breeds of services to the consumer, and managing the customer-vendor relationship. The following sections, on submarket brokering, integrated solutions, and customer relationship management, explain some of the services within the context of this new information-based economy.
Submarket Brokering
Brokering activities create value by consolidating, bundling, and personalizing the resources of Tiers 1 through 3. By doing this, they increase the efficiency of the market channels between multiple submarket vendors and the individual consumer. The broker effect offers customers consolidated, turnkey solutions that better meet the complex demands of the information-era marketplace. By consolidating, bundling, and personalizing, brokers add significant value to the market channel. They give the customer the benefits of greater selection and lower prices. Although each of these broker functions represents a distinct value-adding activity, the specific manner in which enterprise may capitalize on the broker effect is still unclear. A vertically integrated vendor, involved at each level of the market tier, will likely perform their own brokering services internally, thereby capitalizing on all of the brokering efficiencies to generate greater profits and to secure better market positioning against competitors.
Consolidating Services
By aggregating the products and resources of the underlying tiers, the market broker gains price advantages and optimizes selection variety for its customer base in the following ways:
Scale economies— Brokers consolidate the products/services from multiple vendors for mass-market resale.
Competitive sourcing— Flexible vendor agreements enable brokers to always receive the most competitive price among multiple vendors.
Variety optimization— Brokers can offer the greatest selection of product and service options to their customer base by exploiting the wide qualitative range to be found in the multitude of specialized source vendors.
Bundling Services
Bundlers combine complementary products and services into synergistic value-adding bundles. They specialize in perceiving and executing the opportunities that maximize value by achieving the most economically synergistic product and service combinations. Offering multiple services and/or turnkey, integrated product and service solutions creates customer loyalty and raises competitive entry barriers by increasing the costs for the customers to switch providers.
Personalizing Services
The provider of personalizing services generates value by redistributing the consolidated product and service bundles to target market segments. They specialize in understanding taste and need profiles. In this step, the broker adds value by differentiating the features of final product and service offerings to best meet the customer's individual needs and specialized preferences.
Integrated Solutions
Integrating the network access and control and network administration activities provides a platform for network operations. Through this platform, independent service vendors can offer an entirely new generation of information-era residential services to the consumer. Let's take a closer look at integrated solutions and how they create value for users of in-home networks and generate new business models for service providers.
Network Access and Control Services
This service category includes the value created by the network access and control functions that are performed from within the home and from remote locations. This empowers the consumer to automate their ENDs and to monitor and control their home network remotely via the Internet. It may also involve the participation of a centrally organized entity that standardizes the access and control functions as a public service for the general population.
Such a network access and control "provider" could serve as the trusted gatekeeper to the home environment, through which private vendors must pass to access the consumer (see Network Administration Services and Residential Services). Conceptually, this entity will function similarly to public utility companies. But instead of providing electricity or local phone services, they will provide home network access and control services that may include the following:
Network access security and authentication
Device automation; heating, ventilation, and air conditioning (HVAC); lighting control
Telemetry/meter reading (gas, water, and power)
Device status assessment and network query
Energy management (load shedding, demand-side management)
Network Administration Services
Network administration services include any activity that makes the operation of the home network environment simpler for the consumer. The value proposition primarily involves masking the network's technological complexity and automating the maintenance of the overall home environment.
The consumer may select among different, competing network administration service providers, similar to how they select among competing long distance phone service providers. The network administration service provider will work with the network access and control service providers similar to how the long distance companies work with the local phone companies.
With the information obtained from the network access and control service providers, the network administration services provider offers user-level technical support for maintaining the substructure (home infostructure), and managing the complex array of service contracts and warranties for the multitude of ENDs provided by different manufacturers. The network access and control services, combined with the following examples of network administration services, will integrate to form the network operations platform needed to deliver the next generation of residential services.
Operational administration and technical support
Device maintenance and servicing
Device warranty management
Bandwidth management and network optimization
Remote network configurations and network maintenance
Residential Services
The residential service providers will be independent vendors who integrate their service-based core competency around the new business model of the information era. The residential service providers will include both new and existing business entities that can access the submarket resources (via brokers) and use the network access and control and network administration functions as a powerful platform to deliver their services to the consumer.
The traditional, industrial-era businesses of today will need to evolve their business models to maintain a long-term competitive position in the information economy. For them, success will involve a rapid strategic repositioning that enables them to use the new technologies of the underlying market tiers as competitive tools to become more consumer-centric. This involves a shift in the consumer "turf" from the public marketplace to the private home, where many competitors will vie for consumer attention and loyalty. These vendors will need to learn how to compete in the domain of the consumer, which involves more proactive marketing efforts and greater sensitivity to individual consumer needs.
No longer will vendors be able to wait for customers to walk through the front doors of their offices and shops requesting service. Consumers of tomorrow will be able to relax in the comfort of their homes and choose among multiple vendors who actively seek them out. Intelligent agents will empower consumers to compare prices in ways that will eliminate false margins and force vendors to compete based on stricter performance metrics. The vendors that survive the transition will quickly realize how to use information and emotion to attract and retain the consumer of the information-era marketplace.
New participants will also emerge in the residential services sector to exploit the many market opportunities that cannot yet be foreseen. Many businesses that currently operate in the professional services sector, like health care and finance, will realize the opportunity to extend their market reach directly into the home by leveraging the systems and products of the underlying market tiers of the new economic model. Traditional industrial-era businesses will develop new information-era business models that leverage their fundamental service-based core competencies. The following list includes a few examples of possible home-service businesses that may soon emerge.
Remote home monitoring (security, disaster, and emergency services)
Home health care
Energy management
E-commerce (virtual retailing), banking, and financial management
Civic management services
Distance learning
The following case scenario exemplifies how one part of an industrial-era service sector (the health care industry) might realistically make the transition into a next-generation residential service provider.
Residential Services Case Scenario: Home Health Care
A hospital can capitalize on its core competency of health care, but extend its market scope into the residence with new information-era service offerings.
Their core competency is providing health care. A hospital could augment its service offering by using the Tier 1 infostructure (as a universally compatible communications platform), the Tier 2 ENDs (like a bedside video monitoring camera or a customized patient-diagnostic device), and the Tier 3 DMCs (in the form of voice, video, or information content). By integrating elements from each market tier around its health care expertise, the hospital can create a new type of value-added service like home patient monitoring.
Yet, the scenario for this residential service, and the limitless possibilities for others like it, can only exist once the underlying market tiers have been developed. Again, this emphasizes the significance of the derivative market effect in determining the outcome of the emerging information-era business environment.
Customer Relationship Management (CRM)
Customer Relationship Management (CRM) is the most important level of the value model because it involves the final interface and resource exchange with the consumer. The CRM level represents a relationship-management activity, where the CRM provider acts as the contact point through which the consumer can access the resources of the various submarkets.
The strategic importance of managing this relationship is obvious, as the CRM provider acts as the gatekeeper to the systems, products, and services of the composite market model. Additionally, the CRM brand recognition enables the provider to represent many different submarket players in the eyes of the consumer, giving them perhaps the most powerful negotiation position of all the different market makers. The CRM level demonstrates the critical importance that brand recognition and customer loyalty will play within the information economy business models. As the final level in the information economy derivative markets model, the CRM level is characterized by both the highest margins and the highest degree of personalization.
The complexity of the information-era economic system will extend far beyond the conceptual scope of this IEDMM model. It will no doubt include value-adding market segments that were not considered in this discussion. Ultimately, it remains impossible to completely predict a future that, in hindsight, always appears so simply obvious.